Josh Callen put it plainly: Growers are selling hay for 2019 prices while paying 2024 production costs. That’s how the author of the Hoyt Report set the scene for the Western market during his annual analysis at the California Alfalfa & Forage Symposium last week in Sparks, Nev.
Callen said low hay prices coupled with high inflation has been a major hurdle for producers this year, which echoed his observations last year. However, the market analyst had a rosier outlook this time around, suggesting that Western hay prices appear to have established a floor and could very well be on the rise.
Before shedding light on the positive prognosis, Callen offered four reasons why the current market has reached such a low. Those include light demand from major export markets, low commodity feed prices, less alfalfa utilization by dairies, and reduced drought pressure in the West.
Light export demand. Hay exports largely influence the Western hay market, especially in the Columbia River Basin and the Imperial Valley. Even though total hay exports have been up about 6% compared to last year, Callen said demand for U.S. alfalfa hay has shifted downward, largely because of China and its failing dairy industry.
Despite milk not being a staple food product in Asian countries, Callen explained that China’s government began artificially building its dairy production in 2018, sending alfalfa exports skyward. Without sufficient consumption to sustain the market, though, Chinese dairy hit a wall, and then took a dive, pulling milk prices and hay demand downward as well.
Trade has also been relatively soft among other large export markets, namely Japan and South Korea. Callen suggested this is due to the unrelenting strength of the U.S. dollar against the Japanese yen and South Korean won. In fact, the exchange rate between the dollar and the yen has reached 20-year highs, which has prompted Japanese government to subsidize domestic hay production for dairy, curtailing its demand for U.S. product.
Low commodity prices. Assessing the situation stateside, Callen said hay prices are highly correlated to commodity feed prices, which have been sitting in a valley for most of 2024. In this case, many farmers opt for cheaper protein substitutes to include in mixed rations, like soybean or canola meal, dampening the demand for alfalfa hay. Even so, alfalfa inclusion rates have already been on the decline for several years, which led Callen to his next assumption.
Feeding trends. A shrinking number of dairy farms in Western states, as well as the rest of the U.S., has warranted much less competition in the market than there used to be.
Moreover, alfalfa inclusion rates are roughly 3 to 5 pounds per cow per day where that number previously reached 10 pounds per cow per day a decade ago. “That’s a big change, and it’s something I think the industry needs to understand and determine what we can do to counteract that and get accurate information out there about the benefits of alfalfa for dairy utilization,” Callen asserted.
Drought. As many parts of California escaped the grasp of drought status, water was no longer a scarce resource for farmers. Callen suggested this may have contributed to a wider price spread among hay qualities this year. Lower hay grades sold cheaper throughout the summer while Supreme and Premium quality hay prices remained relatively stable.
“As we came out of those drought conditions and there was a lot of lower quality hay available, that market really shrunk compared to the higher grades,” Callen said.
Looking ahead
In addition to the absence of drought, Callen noted favorable weather during the growing season offered ideal harvest conditions for many growers, with few instances of delayed cuttings or rained-on hay in late summer and fall. As dairies use up the surplus of lower quality alfalfa that bolstered hay stocks at the start of the season, that oversupply may begin to tighten up and help hay prices recover. The mention of dairy hay contracts, which are already being made in the Imperial Valley, may also give a nod to the direction hay prices are headed early next year.
“We could see an increase [in prices] for those lower grades coming into next year in the Great Basin,” Callen purported.
He also suggested the decline in alfalfa acreage may turn around, especially as almond acreage seems to stabilize. This could be due to a number of factors, including stricter water use regulations. Nonetheless, Callen expects the number alfalfa plantings to hold steady, if not improve, in many Western states.
Timothy acreage is also expected to improve as the same favorable weather conditions for alfalfa encouraged better timothy production, which was a bright spot for many Western growers this year. Callen reported that timothy yields were up, quality was high, and grass hay prices were strong, stiffening the competition for alfalfa. However, it’s uncertain if the timothy hay market will continue to prosper next year as acreage and production are both expected to grow.
Overall, the market analyst suggested 2024 could be the last of a multiyear alfalfa hay price decline. The last time the market took a similar tumble was between 2014 and 2015 before prices slowly started to climb out of 2016 and into 2017. The biggest questions that remain are how the strength of the U.S. dollar will change export dynamics and if tariffs proposed by new government administration will take shape and influence trade dynamics.
“I saved the good news for last — it feels like we’ve bottomed out,” Callen said to conclude his presentation.
